PROFspectives: The Gig Economy

Over the past decade, companies like Uber, Lyft, Airbnb, TaskRabbit, and many more have emerged to create was is loosely defined as the “gig economy”—an economic model predicated on companies relying on independent contractors and freelancers to complete work rather than full-time employees. While gig economy jobs are often temporary and don’t offer the protections and benefits of full-time employment, they enable workers to create their own schedules and maintain maximum flexibility. According to Investopedia, it is estimated that nearly a third of the American workforce is working in some sort of gig capacity.

Given this growing trend, and arguably fundamental shift in the structure of the United States economy, this month we ask: how is the gig economy changing the American workforce?

The gig economy can provide workers with flexibility and independence, removing the walls and ceiling of a traditional job. It can also remove the floor of stability and security. The technology that enables individuals to provide these services directly to customers on such a large scale has relied on data analytics to do so efficiently and effectively. The resulting analytical information and insights are incredibly valuable, but can also be somewhat Orwellian.

An ever-increasing number of traditional jobs are incorporating elements of those in the gig economy. Our hypercompetitive, globalized, and constantly connected economy has placed new demands on employees, tracking value delivered and measuring efficiency. As with gig economy workers, employees will have to constantly demonstrate their worth. To me, this is the essence of an entrepreneurial mindset—a way of thinking and acting that is focused on imagining new ways to solve problems and provide benefits that create value. A lesson I learned early as my career began as a Wall Street trader where the motto was “You’re only as good as your last trade!”

Charles Handy, a British author and management philosopher, predicted the "portfolio worker" decades ago and his advice to his own children was "look for customers, not bosses."

Edmund Mantell, PhD
Professor of Finance, Lubin School of Business

When I was invited to express a few thoughts on the economics of the so-called “gig economy” the first thought that occurred to me was to define what I mean by that term. Here’s what I mean: a gig economy is a labor market in which temporary employment is common and where many organizations contract with independent workers for (usually) short-term employment. What makes these workers “independent”? The most salient economic characteristic is that independent workers are not salaried employees of the organizations that pay them and hence they are not offered the array of so-called employer-provided fringe benefits.

Is this necessarily a bad thing? There are plenty of people who think so. It is not difficult to find outrage expressed in the media (including the web) about the exploitation of workers in the gig economy. Here is a typical expression of that outrage:

Companies who rely heavily on independent contract workers have discovered they can harness advances in software and behavioral sciences to old-fashioned worker exploitation, according to a growing body of evidence, because employees lack the basic protections of American law.

Get that? Companies can “...harness advances in software and behavioral sciences…” Isn’t that terrible thing to do! Well, maybe not.

Historians, economists, political scientists, and sociologists have seen the language “worker exploitation” before. It pervades Das Kapital. The solicitous attitude expressed above implies that workers in the gig economy are like children who can be manipulated by pernicious businesses to make decisions inimical to their economic self-interest. To the contrary, I suggest that virtually every lawful contract between an independent worker and a business is an example of what economists call a wealth-creating transaction.

In a gig economy the costs of conducting business decrease and that adds to the income of the owners of the business. Often, but not always, many of those owners are stockholders or families of modest means. A gig economy also offers to businesses opportunities to contract with experts for specific projects who might be too high priced to hire as salaried employees. From the perspective of an independent contractor, a gig economy can offer opportunities to improve a work-life balance over what is feasible in most 9 to 5 jobs.

The increasing pervasiveness of the gig economy is indubitably fueled by the internet. And that’s a good thing, because it can be expected to result in a more efficient allocation of labor resources. When the gig economy functions at its best, independent workers can select the kind of work they are interested in rather than taking any kind of gig they can find because they can’t find full-time salaried employment.

I am not a sociologist or an economist, but if the gig economy is a real phenomenon then it would seem to reflect a continuing trend in American labor, specifically the decline in long-term employment with the same employer. As a psychologist with an interest in happiness, I can say that work is a consistent predictor of life satisfaction. It is thus interesting to consider the ramifications of the gig economy on individuals’ well-being.

On the positive side, people report feeling more productive and more satisfied with their jobs when they have a sense of autonomy. Autonomy is about feeling in control, and ostensibly this is what the gig economy is all about: people pursuing different jobs at their discretion. The promise of being your own boss seems very enticing.

On the negative side, people feel most satisfied with work when they feel like they are doing something that is personally meaningful. We feel best when we put our strengths to good use. I suppose some aspects of the gig economy might afford such opportunities, but “gigs” are usually a means to make money. If the gig economy amounts to people scrambling from job to job, with little personal value and not much financial incentive, it is hard to imagine a happy workforce, no matter how hard companies try to sell us on the next chapter in the American dream.

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